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Investment advisers speaking at a corporate governance conference in Paris yesterday gave a positive verdict on the US' controversial Sarbanes-Oxley legislation, which critics claim has made corporate America less competitive, arguing the rules have given shareholders powerful new tools to combat fraud.

Michael Lofing, a managing director in financial analysis at the US-based proxy adviser Glass Lewis, told the conference that the Act's insistence on independent audit committees at companies, annual statements on internal controls, and that audit firms should not audit their own work, were all positive steps forward.

He said: "The audit on internal controls will be the one you have heard the most about. The friendly partnership between internal and external auditors no longer exists."

He said EU legislation like the 8th Company Law Directive, now being implemented by national governments across the EU, will introduce mandatorily independent audit committees in many countries for the first time. He also said that there was no protection for whistleblowers in France - something also introduced in the US under Sarbox - until last November.

Since the Act was passed in July 2002 at the height of the scandals at WorldCom, Enron

The Institutional Investor conference yesterday also heard from Walt Pavlo, a former financial controller at the US telecoms group MCI Communications. He was involved in a financial fraud there in the years running up to its takeover by WorldCom in 1998 - which eventually collapsed in an accounting scandal in 2003.

Now a lecturer and author on how companies and investors can avoid such frauds, Pavlo agreed that whistleblower rules such as those introduced under Sarbox could help.

He said: "When I was at MCI our founder declared that he didn't want us to follow procedures. They were seen as barriers to our entrepreneurial spirit ... There has to be a way to provide feedback to the management, and in a very aggressive environment that is missing. There certainly was not any whistleblower provision when I was at work."

However, Jim Peterson, a former auditor at Arthur Andersen and now a commentator on audit and financial controls for the International Herald Tribune, sounded a note of scepticism.

He said the audit industry, dominated by four big players, faced collapse because they operate on a very thin layer of partnership capital and cannot afford to meet the legal liabilities that would arise from a major failure.

Under Sarbox companies are not allowed to use them for more than one function to avoid conflicts of interest. The largest companies therefore employ all four auditors for various functions, meaning that "when the next one goes, the entire structure falls down," according to Peterson.